Blog: The Debt Arrangement Scheme (Improved Formula)
Senior Money Adviser Alan McIntosh (LLB Hons), investigates the implications of today’s changes to the Scottish Debt Arrangement Scheme
The Scottish Debt Arrangement Scheme has jokingly had its acronym, DAS, compared with a famous washing powder (the idea being it washes away debts), which is appropriate.
Like many washing powders it has been through many re-launches, with each promising to be better than the last.
The latest re-launch, due to commence today (29th October 2018), will introduce changes to the remedy, that it is hoped will increase take up of the Scheme and the sustainability of repayment plans under it.
The changes that are commencing are:
Debtors will no longer be required to offer all their disposable income as part of a proposal under the Scheme;
It will no longer be necessary for debtors to include their mortgage and rent arrears into a debt payment programme (DPP);
Those at risk of violence will be able to keep their name off the DAS Register; and
Debtor’s wishing to borrow whilst in the Scheme, will no long have to inform creditors they are in a DPP, until they borrow more than £2,000 (or where they have already borrowed £1,000, at any time).
In addition, where repaying debts will take too long, debtors will now be able to offer the sale of their home at a later date as a discretionary condition of any proposal.
The Debt Arrangement Scheme – a model for the UK
The Scheme, which was introduced in 2004 has had mixed fortunes in recent years. On the one hand, it has been held up as a model for the rest of the UK to follow, with plans now afoot for a UK scheme, provided for under the Financial Claims and Guidance Act 2018. It is also now the most successful of all Scotland’s formal debt remedies in returning money to creditors each year, outperforming both protected trust deeds and sequestrations.
On the other hand it is only in the last year that the number of people completing programmes has been greater than the number who have seen their plans revoked.
Also, in the last three years it has suffered a significant decline in take up, with the number of DPPs being applied for falling by over 50%.
Will the new formula work?
The logic behind the new changes is that by allowing money advisers to exclude mortgage and rent arrears more consumers will use the Scheme, as one of the problems in the past has been debtors have had to include such debts, even though it has not prevented secured creditors and landlords from repossessing homes and evicting tenants.
Also by allowing consumers to not have to propose all their disposable income when applying to the Scheme, it is hoped more debtors will choose to use the remedy over protected trust deeds and sequestrations, providing them with a greater level of financial breathing space as they address their problem debts.
Should creditors be concerned?
I would argue there is no need for creditors to be concerned about the new changes.
First, the requirement to not have to include all disposable income in DPPs should be welcomed. It will not only ensure that plans become more sustainable, and, therefore, more likely to succeed; but will still, in most cases, return more money to creditors over the first four years than personal insolvency solutions will.
Also by allowing debtors to exclude mortgage and rent arrears, a more traditional approach can now be adopted by money advisers when dealing with these debts. It will, for example, now be possible for money adviser to give these debts a priority status and offer increased amounts, ensuring they are cleared off sooner.
This approach will only be possible because debtors will no longer have to offer their full disposable income when making DPP proposals.
Also creditors will still be able to object to proposals, although the Debt Arrangement Scheme Administrator, will still be able to set these objections aside when they believe a plan is fair and reasonable.
Improved Formula Expected
The new regulations, however, only go part of the way towards addressing some of the problems that are believed to be behind the reduced take up of the Debt Arrangement Scheme. As a result, it is anticipated there will be a further consultation launched in coming weeks, which will look at further reforms, including the increasing of statutory fees that creditors pay when customers are in a programme.
Having sat on the recent DAS Regulatory Working Group that was consulted on the forthcoming consultation, many of these far-reaching changes will not only be necessary, but will produce a new formula for DAS in 2019.
Alan McIntosh (LLB Hons) is a Senior Money Adviser and blogs at www.advicescotland.com. All views expressed are his own.
He will be delivering DAS for Creditors seminar for the Legal Service Agency on the 1st of November 2018. For More information, see here.